Mortgage defaults drop, but student loan defaults rise

A growing national economy hasn't yet helped those who owe on student loans, two new reports show.

First, the good news. People who have mortgages are doing a much better job of paying on time, the Federal Reserve Bank of New York's latest quarterly report on household debt show.

But that's not the case when it comes to student loans. Defaults are up, the same report shows, as is the overall amount of money being borrowed.

Outstanding student loan balances increased by $13 billion to $1.2 trillion as of Sept. 30, 2015. That's more overall debt than consumers owe on credit cards or on auto loans.

A big chunk of the money owed on student loans -- 11.6% -- is 90 days or more delinquent in the third quarter of 2015.

In the federal loan portfolio -- which makes up $896 billion of the $1.2-trillion overall student loan debt -- 19.8% of all borrowers, owing 12.8% of the debt, are in default, or more than 90 days late on a payment, the second report, this one from the federal Department of Education, shows.

So why the good news for mortgages and the bad news for student loans?

It's probably a matter of choices being made by people who are still facing tight budgets, said Jason Delisle, director of the Federal Education Budget Project at New America.

"A student loan is generally the last thing people want to pay, and a mortgage is the first thing they pay," he said.

Ted Markel, 26, of Inkster understands that. He and his wife own a home and have student loans of about $45,000 combined. He works full-time, but his wife hasn't had steady employment for several years.

"Every month we are right at the breaking point," he said. "We haven't not paid anything yet, but sometimes we're a little late. For sure, if we had to pick between the mortgage and our student loans, we'd pay the mortgage first. The mortgage keeps a roof over our head."

The latest figures come in as the federal Department of Education is making a big push to get people into income-based repayment plans. Income-based payment plans shift a borrower’s payments around based on how much money they are making, and then forgive the loans after a set amount of time, generally 20 years.

At the end of the summer, the number of people enrolling in income-based repayment plans had grown 56% from the previous year, but still only 3.9 million borrowers are using it.

“There’s more work to do. We won’t stop fighting to help people who are struggling to pay back their student loan debt, but the fact that more and more borrowers are taking advantage of the opportunity to cap their monthly payments is a good sign,” U.S. Education Secretary Arne Duncan said this summer.

But there are still problems with getting people into the income-based repayment plans, Delisle said. The typical defaulters have relatively low balances and aren't willing to work with servicers or fill out the paperwork needed to enroll in the plans.